Where Only the Agile Survive

In the volatile world of telecom, traditional planning techniques and a set-in-stone budget just don't cut it. Mark Peters, executive vice president and CFO of tw telecom, tells how a rolling forecast and a robust communication strategy help his company to thrive in a landscape littered with casualties.

Steve Player: Mark, will you please give us a little background about tw telecom?
Mark Peters: We are a national provider of telecom and data and Internet networking services for medium to large enterprise customers. Primarily, we focus on our local relationships with enterprises and large organizations in our 75 markets across the country. We provide our customers with services that leverage our fiber networks across the entire country. So, for instance, if they're in Tampa, we can connect them to their locations in Portland, New York, or San Diego, to name just a few of our markets. Our objective, for medium to large enterprises, is to be their total solution for their metro area network, their wide area network, their telephone services, and their Internet access services, by tying those all together.

SP: So as businesses move more to software-as-a-service and creating cloud computing through the Internet, you are running the information highways that people are starting to drive more frequently?
Peters: Yes. When you talk about software-as-a-service, cloud computing, managed services, and other buzzwords you hear in our industry, many times we are the enabler. For instance, we are not the videoconferencing experts like Cisco, but what we do is that we bring the connectivity, which requires huge bandwidth, to the locations that utilize that videoconferencing infrastructure. We enable their equipment to work the way it was intended to work.

SP: What have been the challenges for your finance staff in executing this business model?
Peters: Our finance group is embedded in many areas of the business. We have employees in Denver and we have our regional finance directors who are deployed throughout the country. The finance department gets embedded early on in evaluating how we are going to work with the customer; the rules of engagement are established upfront so that we're not reacting our way through each deal. We don't want to be in a position where suddenly a product has been sold and we have to play catch-up to figure out the pricing or return rules or how we make money. It's focused on where we want to drive our business.

That's a big component of why we've been successful. Our finance team truly understands the business. We have people with technical backgrounds who understand the technology and how it factors into the decision. But it's an upfront process, evaluating the products and services that we offer.

We frequently connect fiber-optic networks to our customers' locations with a variety of services. It's a complex business that's capital-intensive, and because of the investment required, it's important for our finance people to be well versed in the products, technology, and pricing rationale to ensure that we're going make money on our capital deployment. We've established an internal rate of return (IRR) model that's the benchmark for committing to a sale. Our salespeople know what an IRR is, which is pretty unique for a sales organization. We must hit that return threshold before we will commit to deploy capital to connect up our customers' buildings.

SP: Your installations require cutting up streets, which can be costly ...
Peters: It can be. Our long-held investment model emphasizes the concept of return; if we're going to sell something, we must generate a return. This well-communicated objective creates focus within the company to go after the right deals and eliminates a lot of wasted energy in going after those sales where we can't generate a return.

We're close to the point today, as we set our goals, where we almost don't have to discuss IRR as much, because it has become part of our corporate DNA. We have to get the return when we invest, or else why do it? Ultimately we're here to return shareholder value, and the way you do that is to get a return on the investment, whether it's in infrastructure, or in product, or in people. That's a given in our organization.

SP: How did this company get started?
Peters: The company began in 1993 as a joint venture between Time Warner Cable and US West, though neither of those companies is an owner today. The original concept was, because of the cable involvement, to find a way to efficiently deliver residential and business telephony.

In that initial joint build, we installed our fiber network in those overlap cable markets. At the time, I think the company was a little bit ahead of the game for delivering residential telephony over a cable network for a variety of reasons, not least of which was the cost of the technology required to compete with the incumbents. Once we determined that the cost made the original residential telephony approach unviable, we turned the company into what's called a competitive access provider. We were selling network services to other carriers -- pretty plain-vanilla services -- but doing it well and at the highest standards of carrier class service.

We then started moving more into the enterprise space. Around 1997, we began deploying circuit switches to support voice services. So, while we were providing services to carriers, we were also providing telecom services to enterprise customers. Beginning in 2003, we then became a pioneer in offering Ethernet services.